Milliman Impact: Actionable insight for business leaders

The insurance industry has a long history of using data to make decisions around risk. It was one of the first industries to use complex models and predictive analytics. But big data has barely made its mark on the insurance industry.

Technology has the power to change risks and turn the insurance industry on its head—and it is opening up the insurance market to new players. Many outside the industry now see the business of selling protection as ripe for change with data and analytics especially able to generate more efficient business models and new approaches.

Regulators' fear of failure drives them from one agenda to the next, often embarking on the next big change before the last one has been completed. This is where the European insurance sector finds itself in 2016. Alongside this is a whole new agenda opening up around conduct regulation. What will this mean for the region's insurance sector?

A range of factors have made outsourcing especially attractive for insurers and for life business in particular. Competition, consolidation, low interest rates and regulatory pressures have all played a role since the early part of the century to popularise outsourcing. Outsourcing built its popularity as a solution to insurers’ closed books of business. It also delivers significant benefits to open book and growing businesses.

Reinsurance is becoming an increasingly important area for insurers, and there are a growing number of options to find efficiencies. Many insurers are now taking a much more sophisticated approach to reinsurance than in the past.

The cyber insurance market is becoming increasingly relevant both in terms of business written and the potentially critical role insurance can play in helping business and society manage cyber security. Cyber is currently one of the faster growing lines of insurance business. US insurance supervisors have taken the lead in addressing insurers’ cyber security risks during a time of unprecedented cyber attacks on insurers and an expanding cyber insurance market.

Cyber risk is destined to become a much bigger part of insurers’ business yet it also comes with challenges. Insurers are grappling with a lack of historical data and the threat of aggregation and systemic risks. At the same time, regulators and ratings agencies are becoming more aware of the potential risks that cyber presents to insurers’ balance sheets and the industry’s reputation.

Organisations are taking their cyber exposures more seriously due to high profile data breaches and tougher privacy regulation. Growth in the cyber insurance market is also expected with increased reliance on technology, in particular as physical industrial processes become digitalised. Insurers must find ways to overcome the huge systemic and aggregate exposures inherent in cyber risk.

In the past, acquisitions in the European insurance market were conducted largely by European—and occasionally other western—insurers. There was little or no interest from Asian buyers, but this is changing. Asian investors are not afraid of spending their money on the right company. They have the capital western insurance companies need and are willing to invest in their future and deliver better returns than they might expect from domestic markets.

Insurers and reinsurers use a vast number of expert resources to understand the rapidly changing nature of the risks they underwrite. Regulation also depletes resources at the board level as politicians and society demand tighter control of the financial sector. Politics plays a role, too. All of these challenges are in sharper focus now because of the regulatory pressures coming from the implementation of Solvency II. But they do exist independently.

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